What is fiat currency?
A term often used in the world of cryptocurrencies as a point of comparison to describe money as we know it today, fiat money can be defined as a government-issued currency that is not backed by a physical object such as gold or silver. It is instead backed by the government that issues it and as a result, doesn’t have intrinsic value.
What counts as fiat money?
Most paper currencies are fiat currencies. This includes currencies such as the British pound, euro and U.S. dollar.
We say most as there are some examples of money we make use of in our day-to-day lives that cannot be described as fiat money. These are called Representative Money and while also produced by governments, it is unlike fiat in that it is backed by a physical commodity.
For example, your credit card is a form of representative money that represents your intent to pay the amount owed. Checks also fall under this category, despite being a more rare example in today’s digital age.
Where did the word ‘fiat’ come from?
For all of you language boffins out there, the term fiat derives from the Latin word ‘fiat’ which means ‘let it be done’ and is used to describe an order, decree or resolution.